South Korean refining margins boosted by exports

For the January-March period, South Korean refining margins are expected to recover on the back of "rises in [global] kerosene and diesel oil prices amid expanding demand for heating oil" and an "upswing in the chemical business," Hyundai Securities said in a research note.

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By ERIC YEP

Refining margins will likely stay
firm for South Korean refineries in 2013 as oil products like
diesel will remain in short supply in the key export markets of
Europe and Australia, traders and
analysts said.

European refineries will continue to operate at low
capacities this year, as they are not configured to produce
large volumes of diesel, and aging and economically unviable facilities will continue to close
due to financing difficulties, analyst Yeon-ju Park of Daewoo
Securities said in its 2013 outlook.

In Australia, aging refineries unable to remain competitive
have shut, and the country is a net importer of diesel from
Asia.

He expects global supply of oil products to increase by
700,000 bpd in 2013 but demand to expand more, by 800,000
bpd.

Despite a slump in the global refining sector due to the economic
downturn, supply has been tight due to both permanent and maintenance-related shutdowns in the
US, Europe and Japan.

"As such, the export market for Korean refiners should
grow," Korea Investment & Securities said in a note.

South Korean refineries saw their margins contract in the
October-December period due to a supply glut as India boosted refining capacity,
South Korean refiners maintained high output and arbitrage
outflows declined.

However, for the January-March period, Korean refining
margins are expected to recover on the back of "rises in
[global] kerosene and diesel oil prices amid expanding demand
for heating oil" and an "upswing in the chemical business,"
Hyundai Securities said in a note.

An ongoing cold spell in South Korea that recently sent
temperatures dropping to their lowest levels in decades and
power shortages, together with similar conditions in Japan, are
expected to boost North Asian demand for kerosene and diesel in
the short term.

As a result, South Korea's refiners -- SK Energy, Hyundai
Oilbank Corp., GS Caltex and S-Oil Corp. -- continue to operate
at almost full refining capacity and may not cut refinery throughput until the spring
maintenance season.

SK Energy plans to shut a 110,000-bpd No. 2 crude distillation unit at its Ulsan refinery from mid-March to mid-April
and the 170,000-bpd No. 3 crude distillation unit from mid-May to
mid-June.

S-Oil will shut the 90,000-bpd No. 1 CDU at Ulsan in July
for 2-3 weeks and the 240,000-bpd No. 3 CDU in April for 2-3
weeks.

Additionally, Hyundai Oilbank and GS Caltex also plan refinerymaintenance in the second quarter,
though the dates are not fixed, traders said.

The four South Korean refiners will process around 2.67
million bpd of crude in January, according to a Dow Jones
Newswires survey. They processed around 2.58 million bpd of oil
in November, roughly flat compared with 2.61 million bbl a year
earlier, data from Korea National Oil Corp. showed.

Dow Jones Newswires

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